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Canada Capital Gains Tax: A Complete Guide for Property Sellers

Capital Gains Tax in Canada

So, you have a property in Canada and want to sell it. A good decision, but it may require you to review the tax requirements to understand your capital gains better. In fact, the taxation regime in Canada has changed significantly over the past couple of years, and it is essential to know how to calculate capital gains.
The 2024 Tax System Overhaul in Canada has brought significant changes to the taxation regime. At One Accounting, we believe that you need to have clarity about the best strategy you should opt for. This guide is designed to help you understand exactly how capital gains work in December 2025, how the “new” inclusion rates affect your bottom line, and the strategies you need to minimize the hit.

What is the Capital Gains Tax in Canada?

The Capital Gains Tax is NOT a separate tax that will show up in your payable taxes. It is a part of the profit in your annual taxable income.
Imagine you sell a property for more than what you paid for it. The profit you get is your capital gain. As per the guidelines of the Canada Revenue Agency, a portion of this capital gain is taxable. This portion is added to your other taxable income and taxed at the rate that applies to you.
This percentage of the profit from your property sale is called the Inclusion Rate.

The Inclusion Rate as per the 2024 Tax Overhaul

For several years in the past, the inclusion rate was 50% of your capital gain. However, after the rules that were established in June 2024, it has changed considerably. The taxation now depends on who owns the property and how much profit was made.
For individuals

  • Tier 1 – The first $250,000 of the capital gain in a year is taxed at a 50% inclusion rate.
  • Tier 2 – Any capital gain above $250,000 will be taxed at a 66.67% inclusion rate

For corporations and trusts
All the capital gains are taxable at a 66.67% inclusion rate.

Note – It may be noted that the 50% and 66.67% stated above are inclusion rates, not tax rates.

How is Capital Gains Tax Calculated on Real Estate Sales?

Let us now find how to calculate capital gains tax in Canada. To understand capital gains tax and how it is calculated, it is essential to use an example.
For tax purposes, you need to calculate your Adjusted Cost Base (ACB).

The formula for calculating ACB is here below –

  • Proceeds of Disposition (Selling Price)
  • Minus Outlays and Expenses (Real estate commissions, legal fees)
  • Minus Adjusted Cost Base (Original purchase price + capital improvements + land transfer taxes paid on purchase)
  • = Total Capital Gain

Once you have arrived at the profits you have made, you can apply the inclusion rate to arrive at the taxable capital gain.
Here is an example to understand it properly.

Let us say you made a capital gain of $ 500,000.

Let us take an  example of an individual selling a property –

  • Selling Price: $900,000
  • Purchase Price + Improvements (ACB): $400,000
  • Selling Costs (Commissions/Legal): $40,000
  • Total Profit (Capital Gain): $460,000

Since you are an individual seller, you will benefit from the $250,000 threshold. 

  • First $ 250,000 capital gain

Inclusion rate – 50%. 

Taxable amount – $125,000

  • Remaining $ 210,000

Inclusion rate – 66.67%

Taxable amount – $ 140,007

The total taxable capital gain will thus be $125,000 + $140.007 = $265,007.

This amount will be added to other taxable income, and the total will be charged at the rate prescribed for the individual’s category. 

If a corporation or a trust sells the property, the inclusion rate would be 66.67% on the entire $460,000. It would come to $ 306,682.

Capital Gains Tax on Investment and Rental Properties

If the property you sold was your residential property and the primary home until you sold it, you do not need to pay any capital gains tax. You are exempted from paying any sort of capital gains tax. However, reporting your capital gains in mandatory.
However, if it was not your principal residence, this situation will trigger several specific tax events.

  • You can claim CCA or Capital Cost Allowance on your rental or investment property. This amount is called recapture. The total amount of CCA you claimed is added back to your income in the year of sale, and, unlike capital gains, 100% of recapture is taxable.
  • You will be charged at a 50% or 66.67% inclusion rate on the capital gains you make.

If you sell a property but agree to receive payment over several years (a Vendor Take-Back Mortgage), you don’t have to pay all the tax immediately. You can claim a Capital Gains Reserve. 

The provision for the Capital Gains reserve offers the following important factors –

  • This allows you to spread the tax liability over up to 5 years.
  • The Rule: You must report at least 20% of the gain each year (or the actual cash received, whichever is higher).

Why use it? 

By spreading the gain over 5 years, you might keep your annual gain under the $250,000 threshold, allowing you to utilize the lower 50% inclusion rate on more of your profit.

Capital Gains Taxes for U.S. Expats With Canadian Property

If you are a US citizen living in Canada, things can get slightly complicated. This is a specific taxation regime applicable to non-residents selling their Canadian property. 

You will be liable to pay double taxes. However, you can claim for foreign tax credits to avoid double taxation. 

  • Canadian Taxes – You will be liable to pay taxes to the Canadian tax authorities at the prevailing rates, just like a normal seller in Canada. However, you may be required to comply with other requirements to be eligible for withdrawal. 

US tax – US laws tax its citizens and green card holders on their worldwide income. This includes capital gains tax in another country.

The Withholding Tax (Section 116)

If you are a non-resident for tax purposes, the buyer is legally required to withhold 25% of the gross sales price (not just the profit!) and send it to the CRA. To prevent this, you must file for a Certificate of Compliance (T2062). This proves to the CRA that you are paying the tax on the gain, allowing the buyer to release the rest of the funds to you.

Conclusion

Selling a property in Canada in 2025 is not just about making a profit. It does require a tax strategy. The difference between the earlier tax regime and the current rate can be confusing for most of us.
The tiered inclusion rate has already come into full effect. A lack of knowledge between the old and new regimes can make it confusing. The cost of guessing can cost you tens of thousands of dollars.
Whether you are looking to utilize a capital gains reserve, navigate a change of use, or file a final return for an estate, the team at One Accounting is here to ensure you don’t pay a penny more than necessary. We help you learn how capital gains work in Canada.

FAQ

What is the capital gains tax when selling property in Canada?

The capital gains tax is the tax charged on the profit you make on selling your property. However, it is not a separate tax. It is part of your profit that is added to your taxable income.

Simply subtract your selling costs from your selling price. The Selling costs include purchase price and improvement overheads. The result would be your capital gain. If you are an individual, 50% of the first $250,000 is taxable, and 66.67% of any amount above that is taxable.

No. If the property that you sold is your primary residence all through the period of ownership, you do not owe any tax. This is called Principal Residence Exemption (PRE). However, you should report the profit on your tax return even when it is exempt.

As per the 2024 changes, for individuals, gains over $250,000 are taxed at 66.67%. For corporations, all gains are taxed at 66.67%. This significantly increases the tax bill for sellers with large profits.

Yes, a rental property sale is taxable in Canada. It is not qualified for the Principal Residence Exemption for the years it was rented out.

You can choose the following strategies for the purpose –

  • Capital Gains Reserve: Spreading the gain over 5 years if you offer a vendor take-back mortgage.
  • Offsetting with Losses: Selling other underperforming assets to realize a capital loss, which cancels out your gains.
  • RRSP Contributions: Making a large RRSP contribution in the year of sale to lower your overall taxable income bracket.

Yes, non-residents are expected to pay capital gains taxes. The tax rate would be similar to that for Canadian residents.

Technically speaking, you need to pay capital gains taxes in both Canada and the US. However, you can claim a Foreign Tax Credit on your U.S. return for the taxes paid to Canada.

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Disclaimer: Information shared in this blog is general in nature and may not apply to all situations or circumstances. Contact One Accounting for accurate, professional advice.